Spending is 2/3 the problem

Bruce Bartlett discusses the supposed "lies" promoted by the Republicans in the budget debates. He claims that Republicans lie that the deficit is caused 100% by spending and points out that if tax revenue were at the historical average of 18.5% of GDP, the deficit would be lower by a third. But the obvious conclusion by anyone with a brain is that 2/3 of the deficit must be caused by spending. So, we are Republicans the evil liars and not the Democrats who go on and on about the Bush tax cuts causing the problems. The most sensible approach is to look at the long term average revenue brought in by the government and budget around that figure. 18.5% of our 14 trillion dollar economy is about 2.6 trillion dollars. So we should have a federal budget of about that much. Instead we have a budget of 3.7 trillion dollars. We need to cut a trillion dollars out of the budget to bring it to a realistic amount that we can afford. The problem is mostly a spending problem, not a tax problem. The president talks about taking away the Bush tax cuts for people making over $250,000 a year but according to his own figures that would only take in $700 billion over 10 years which is an average of $70 billion a year. That's about 5% of the deficit this year. Who's being unrealistic?

Mellonism

I'm glad that Paul Krugman has identified Andrew Mellon as the proponent of laissez faire, anti-Keynesian, neanderthal economics rather than Herbert Hoover. Previously, he has identified Hoover as the ultimate economically conservative president, which is completely inaccurate. Hoover, in fact, rejected the advice of Mellon. The philosophy of "liquidate, liquidate, liquidate" was not applied. When we're in a "liquidity trap" as Krugman terms it or a balance sheet depression, debt levels are so high that nobody can spend. Most people are burdened by their debts and are stuck because so much of their income is spent making payments on their debts. Liquidating bad debts that are probably never going to be paid back anyway is one way to solve this problem. Otherwise we are stuck in a low growth stagnant situation like Japan has been since the early 1990s.

It's also interesting to see Krugman discuss the 1920-1921 economic downtown here, here and here. The Harding administration's solution was to avoid engaging in any massive bailout or stimulus, despite the advice of Herbert Hoover, then Commerce Secretary. He claims the 1920-1 situation was different because the debt level was low compared to the high levels of debt in 1929-1933 and the present. I would like to see an Austrian response. I'm not sure at all that the higher level of debt justifies increased government stimulus. My impression is that the opposite it true. Government intervention is propping up bankrupt entities which weighs down the whole economy. It may be more important that the government lets the market take its course in this situation. But I would like read more about this.